At a time of year when much of the retail news we hear focuses on receipts and holiday sales performance, I can’t help thinking that the notion of value has become synonymous with price — and only price. You can make the argument that price has nearly hijacked the whole definition of value. Why is that, exactly? Should retailers be paying closer and more systematic attention to how they articulate (and how customers perceive) the value of their brand?
From my perspective, there are six key factors in the value equation. Actually, I see it as less of a straight-line equation and more of a “matrix”, with different retailers occupying their own strategic space based on their individual combination of strengths. While price is undeniably a big factor, there is also selection, quality, service, and convenience, as well as a category I refer to as “social consciousness”, which encompasses everything from environmental responsibility and charitable giving, to how you treat your employees.
Once we start thinking about retail value in these concrete terms, it’s not hard to see where certain chains fit in. Wal-Mart, Target, Costco, and many on-line retailers are known for their low prices; selection is a traditional strength of “category killers” like Dicks Sporting Goods and Best Buy; quality is the obvious selling point of luxury brands like Tiffany & Co. and Saks Fifth Avenue; Nordstrom has long taken pride in its high level of service; and convenience, while largely a location-specific trait, is definitely a plus for traditional supermarkets, fast food restaurants and pharmacies. Social responsibility, meanwhile, represents value for locally sourced operators such as Chipotle, stores specializing in natural products, such as Whole Foods, and local independents.
Many retailers boast more than one of these factors, of course, but, in the same way that certain key value metrics can help pin down a particular brand, this perspective clarifies what they are not. It’s not an especially controversial observation to point out that while Nordstrom does service quite well (and perhaps quality and selection), price and convenience are not traditional brand selling points. The lines, though, are not always black and white. Is Wal-Mart a socially conscious operator for its forward-thinking sustainability initiatives? Or is it seen as a pariah for maintaining a low wage scale with skimpy benefits package for its employees?
This all leads to the fundamental question: What can retailers do with this framework? At its most basic level, it’s about branding. Ultimately, who you are as a brand rests on how you express value to consumers — and where you fall on the value matrix is a huge part of your brand. But I also think that viewing the success, failure, and evolution of different brands though this more nuanced and expansive definition of value sheds some light on why some retailers have thrived, others have failed, and why evolving as a brand and changing consumer perceptions can be such a challenge.
The failure of some brands can be tied to a lack of any defining niche on the value matrix (K-Mart hasn’t recently excelled in any one specific area, for example). When you are not clear about where you fall on the matrix, you risk confusing the customer. I worry that Sears is one prominent brand suffering from an inability to define itself on the value matrix. That same issue of consumer uncertainty also makes it tough to change, and a real challenge to re-establish yourself at a different place on the matrix — as J.C. Penney is discovering. While J.C. Penney is incorporating more trend-forward brands (Sephora, Buffalo Jeans, Mango) and has undergone a comprehensive reworking of its brand identity, the future is still far from certain. Change can happen, of course, but it often takes time. Macy’s, for example, has gradually shifted from a quality proposition to a place on the matrix where it is known more for its great deals and wide selection. Change can also be more of an organic process (as in the case of Starbucks, where the brand is no longer defined quite so much by quality as by convenience).
So, while price will always be part of the equation, I believe it’s critical for brands to not let dollar signs overshadow other essential value components. Successful brands look beyond price to focus on the areas of the matrix where they connect with their target customers. Consumer behavior and customer loyalties make it clear that successful branding is about specializing: One size clearly does not fit all.
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Click here for past columns by Jeff Green.